Correlation Between Total Energy and Eni SPA

Can any of the company-specific risk be diversified away by investing in both Total Energy and Eni SPA at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Total Energy and Eni SPA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Total Energy Services and Enterprise Group, you can compare the effects of market volatilities on Total Energy and Eni SPA and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Total Energy with a short position of Eni SPA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Energy and Eni SPA.

Diversification Opportunities for Total Energy and Eni SPA

0.63

Correlation Coefficient

Total Energy  Eni SPA

Poor diversification

The 3 months correlation between Total and Eni is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Total Energy Services and Enterprise Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Group and Total Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Total Energy Services are associated (or correlated) with Eni SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Group has no effect on the direction of Total Energy i.e., Total Energy and Eni SPA go up and down completely randomly.

Pair Corralation between Total Energy and Eni SPA

Assuming the 90 days trading horizon Total Energy is expected to generate 8.51 times less return on investment than Eni SPA. But when comparing it to its historical volatility, Total Energy Services is 2.85 times less risky than Eni SPA. It trades about 0.04 of its potential returns per unit of risk. Enterprise Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Enterprise Group on October 6, 2024 and sell it today you would earn a total of  195.00  from holding Enterprise Group or generate 1500.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Total Energy Services  vs.  Enterprise Group

Total Energy Services

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Total Energy Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Total Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Enterprise Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eni SPA displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Total Energy and Eni SPA

The main advantage of trading using opposite Total Energy and Eni SPA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Energy position performs unexpectedly, Eni SPA can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Eni SPA will offset losses from the drop in Eni SPA's long position.

The idea behind Total Energy Services and Enterprise Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Technical Analysis module to check basic technical indicators and analysis based on most latest market data.